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Cost to Form an LLC
By Christopher Ricci MONEY RESEARCH COLLECTIVE
If you plan on opening a small business in Florida and want to create a corporate veil between your personal finances and those of the business, then forming a limited liability company (LLC) might be the solution you need.
Not only does an LLC provide legal protections and help to simplify taxation, but it gives legitimacy and credibility to businesses. However, those considering this route may wonder about the start-up costs of forming an LLC.
This article will explore the total cost of forming an LLC in Florida to help you make an informed decision when taking this big leap. Keep reading for an explanation of how much it costs to form an LLC and what to expect so you can budget appropriately.
What costs can you expect when forming an LLC?
The average cost to form an LLC in Florida is $125. This includes filing fees and costs for permits, certificates and licenses, but excludes costs for legal counsel and business advice.
Below you’ll find a breakdown of the costs of starting an LLC.
Filing fees
In most cases, filing the articles of organization with the Florida Division of Corporations accounts for most of the LLC start-up costs. The articles of organization are a legal document that contains basic information about your business, such as its name, address, business activities and members.
Articles of organization also define the liabilities, powers, duties, rights and other obligations of LLC members. You must file articles of organization when you set up an LLC. The articles must then be approved by the state; your company can’t legally exist until the state approves them. The articles will then become the public record of your LLC’s existence.
Your filing fee depends on the state where you plan to set up your LLC. In Florida, the one-time filing fee is $100, which you pay when filing your articles of organization online with the Florida Division of Corporations.
Operating agreements
Although the law doesn’t require you to set up an LLC operating agreement, it’s highly recommended. An operating agreement is a legal document that sets out the rules and regulations for running and operating a limited liability company. An operating agreement will include crucial details such as:
- Ownership percentages
- Contributions
- Voting rights
- Profit sharing
- Management structure
This document will help you avoid business disputes involving issues such as profit sharing and ownership.
You can draft your operating agreement using an online template, but you may want to have an attorney review it. The cost of doing so will vary considerably with the attorney’s hourly rates and the complexity of the operating agreement. In the alternative, you can leave the drafting of your LLC’s operating agreement to an experienced attorney familiar with the state and local rules and regulations governing LLCs. In that case, you may pay attorney’s fees of up to $600.
LLC formation service costs
An LLC formation service specializes in helping people form limited liability companies at the state level. Many services offer packages that include:
- File review
- Name availability check
- Articles of organization filing
- Operating agreement preparation
- EIN obtainment
The cost for these services isn’t fixed and will vary depending on the services you need to form your LLC. However, they’ll save you money and time. LLC formation services are experienced with the procedures involved in forming an LLC in your state and will give you the advice you need to get the process right. Formation services can advise you about what information you’ll need to complete the necessary paperwork and handle the physical or online filing.
Formation services save time because you won’t have to research the state laws relevant to LLC formation or locate the right forms. An LLC formation service will also reduce the risk of the Division of Corporations rejecting your business filings due to incomplete or inaccurate paperwork.
The ongoing costs of LLCs
Besides the initial costs of setting up an LLC, you’ll have to pay for the LLC’s maintenance costs to keep your business in good standing. These costs include the following:
Taxes
Like other business entities or individuals, LLCs must pay taxes to the federal government. For tax purposes, most LLCs qualify as pass-through entities. This term means that the responsibility to pay taxes to the federal government falls on the LLC’s individual members. Therefore, the IRS doesn’t subject LLCs to income taxes — only the members pay taxes.
As an LLC member in Florida, you won’t owe the state any income tax on your LLC earnings. This is because the state doesn’t collect income tax from individuals.
However, you may opt to have your LLC treated like a corporation in Florida. This option allows you to take advantage of a corporate income tax rate, which is usually lower than a personal tax rate. You also avoid paying self-employment tax on your income as the corporation owner.
In that case, your LLC must file a separate tax return, as the State of Florida will tax your corporation income. The tax is usually 5.5% of the federal taxable income, and you must pay it to the Florida Department of Revenue (DOR).
Registered agent fees
LLC formation costs also include appointing a registered agent who will act as the point of contact between your LLC and the state. The agent will handle all communication with the state and receive payment reminders, tax and business notices and other documents.
The agent also holds all responsibility for accepting the service of lawsuits, legal documents and official mail. In Florida, you must pay a mandatory one-time fee of $25 for a registered agent.
Anyone can act as a registered agent as long as they meet the qualifications set by the state. The requirements dictate that the agent must:
- Have a physical address
- Be at least 18 years old
- Be available during normal business operation hours
These minimal restrictions mean that you, a close friend or an employee in your LLC can register as an agent as long as you or the person you intend to appoint meets the requirements. But while you can be your own agent, there are several benefits to using a professional registered agent.
Because they understand key aspects of LLCs and are attentive to the deadlines for annual filings, professional registered agents can help with compliance. Expert compliance support will help you keep your business in good standing and prevent fees and legal complications.
A registered professional agent will also help you maintain your privacy, which may be especially important if you work from home. If you decide to act as your own agent, Florida Public Records will publish your home’s physical address. As a result, anyone conducting a name search in the state can find your personal address. But if you have a professional registered agent, your own physical address will remain confidential.
Business license renewal
Depending on your business activity, you may need to renew or purchase a business license. You’ll need a state business license if your limited liability company operates in any of the following business categories:
- Architecture
- Engineering
- Interior design
- Real estate brokerage
- Insurance
- Security services
- Medicine
- Accounting
- Cosmetology
You must renew your business license with the State of Florida annually to keep it in good standing. The renewal involves filing an annual report and demonstrating that you adhere to the operational and naming requirements within the state. Renewing your LLC guarantees that it will remain legally operational and will maintain its active status.
During renewal, you should confirm your business entity’s information and update anything that might have changed during the past year. This information includes your LLC’s name, tax ID number, physical location, mailing address and members’ contact information. The business license renewal will cost an average of $100 per year.
Annual report fees
The State of Florida requires LLCs to file annual reports with the Secretary of State. The report provides the state with up-to-date information about your LLC. This information includes your LLC’s name, registered agent info, place of business and any changes to the identity of members or managers.
Filing an annual report with the state will cost you $139. You should ensure that you file your annual report on time, as delays may result in late filing penalties and interfere with your LLC’s operations. According to the Division of Corporations, you should file your annual report by 11:59 p.m. EST on May 1 every year.
Forming an LLC in Florida includes some additional costs. If you want to give your business the best start as a legal entity, you should plan for the following:
- Publishing costs for a business name, or DBA (doing business as) name
- Name reservation fees
- Securing a domain name
- Certificate of status filing fee
- Certified copy of record filing fee
Don’t forget other indirect costs, such as insurance, to protect your business premises and finances. Do enough research on the best business insurance to find a provider with wide coverage options.
What are your options for covering startup costs?
After calculating all your expenses, you should consider your financial options to cover these initial costs. The costs to form an LLC can add up, so plan for them early on in your business venture. Some of the options available to help you cover Florida LLC costs include:
- Bootstrapping: Bootstrapping, also known as self-funding, entails saving for an extended period of time to cover startup costs. This should be your first option for covering LLC costs because you might have trouble getting external financial help, especially if moneylenders or investors doubt your LLC’s growth potential.
- Crowdfunding: Crowdfunding involves raising small amounts of money from a large group. Platforms like Kickstarter and Indiegogo have made this option much easier for entrepreneurs looking to cover their startup costs. An additional benefit of crowdfunding is that it generates interest in your business, which may help down the road in marketing your products or services.
- Small business loan: A small business loan from a bank or the Small Business Administration provides another alternative for covering LLC formation costs in Florida. However, you’ll need a good credit score and a solid business plan. Start by exploring the best small business loans to find the ones that offer advantages like an easy application process, flexible qualification requirements, and fast funding.
- Angel investors: Angel investors are usually individuals or organizations with surplus cash and a genuine interest in investing in startups. They will screen your proposal to decide whether to invest in your LLC. Some angel investors are part of investor networks that specialize in particular types of businesses.
- Venture capitalists: Venture capitalists tend to have more specialized experience than angel investors. They also have access to larger amounts of capital and can help entrepreneurs bring their ideas to life. Venture capitalists can often provide expert advice and mentorship to help you and your business succeed.
- Business credit card: You can use a business credit card to cover small or one-time costs associated with setting up an LLC in Florida. Business credit cards give you the convenience and flexibility of making purchases without cash and paying bills online. Just make sure you don’t overspend and keep track of your expenses.
Once your LLC starts running, you’ll need a business checking account to organize your finances. The account will help you manage and track your expenses, including your monthly minimum payments for your business credit card.
Know the financial requirements before starting your LLC
Before deciding to form an LLC in Florida, you should know the financial requirements to ensure your business starts and continues running smoothly. This article has highlighted the business costs you should plan for when forming an LLC in Florida, including both statutory requirements and optional mechanisms.
While it’s possible to go into business for yourself without incorporating, the risks and disadvantages of doing so usually outweigh the fairly modest fees associated with forming an LLC. Knowing what those costs are will help you plan and manage your business’s finances in its start-up phase. Before you launch your LLC, explore the options that can help you cover start-up and ongoing costs. With all this in mind, you’ll find yourself better prepared to start your LLC and make it a success.
Christopher Ricci is a freelance SEO writer and consultant who has been working in the industry for over 10 years. He has a wealth of experience and knowledge in creating optimized content for search engines and helping businesses improve their online visibility. He's currently studying to become a certified Google Ads Partner so that he can better serve his clients. In his free time, Chris enjoys hiking and spending time with his family.